What Mattered Today: Trump Rules!

James Gerrish

Aussie stocks bucked the overnight selloff in the US helped somewhat by Trumps State of the Union address which was long on patriotism, shorter on protectionism than some feared and full of classic Trump one liners…”Over the last year, the world has seen what we always knew: that no people on Earth are so fearless, or daring, or determined as Americans. If there is a mountain, we climb it. If there is a frontier, we cross it. If there is a challenge, we tame it. If there is an opportunity, we seize it…”

The market particularly liked talk on infrastructure spend and US Futures ticked higher helping to support our market, however the bulk of the local buying from the daily lows below 6000 happened before Trump took stage – clearly there was a buy the dips mentality, supported by a weaker than expected inflation print which reduces the chance for local interest rate hikes. On the mkt, the $US earnings were well bid, as was some of the defensive sectors like the Telco’s – Telstra put on +1.94% to close at $3.67, a good effort and we expect TLS to trade higher into their Feb/Mar Dividend with Bloomberg consensus sitting at 11cps FF – which puts it on a yield of 3% for the half. We own in both portfolios from around current levels.

Elsewhere, banks remained pretty well supported today while resources were lower, but nothing big. All up, it seemed like Aussie investors saw last night’s US led sell off as a US centric thematic, probably due to pension redemptions at the end of the month. As we wrote in the income portfolio, end of month pension redemptions are happening in the US, and given the massive strength/outperformance of equities this month, it makes sense the sell equities to fund redemptions over and above selling bonds given the recent correction. That theme could again play out tonight however Futures are trading fairly flat as I tap away.

Whatever the case, it was a good effort by Aussie stocks today ending a downbeat month on a positive note. The S&P/ASX 200 index rose 14 points, or 0.3 per cent, to 6037, while the broader All Ordinaries climbed 11 points, or 0.2 per cent, to 6146. For the month, the market has lost 0.5% - the biggest drags being the interest rate sensitive areas like the real estate firms which fell 4.9 per cent and utilities which lost 4.5 per cent. In terms of the currency, the Aussie has had a cracking month adding 3.4 per cent, even though it was softer today courtesy of the inflation data. .

On another note, I sort of feel like we’re doing our subscribers / clients a disservice by not having some sort of Crypto news, some section of our note which has a catchy heading that talks in very certain terms about what the market is like is Crypto Currencies. Not sure I’ll join the party just yet, I’m a total cynic on things I don’t understand, or importantly, have no sort of ‘edge in’ so maybe we title the sector – Crypto Cynic – no idea what I’d write about but I did find one interesting story that could make the cut today… South Korea has uncovered cryptocurrency crimes worth 637.5 billion won ($594.35 million), which includes illegal foreign exchange trading, a statement released by the country's customs service said on Wednesday. The statement said domestic investors bought 1.7 billion won worth of cryptocurrencies, which they sent to overseas partner companies through virtual wallets. The transfers were then converted back into fiat currencies, which amount to unrecorded capital outflows. I reckon we’ll see more of that sort of thing! Anyway, Bitcoin has had a tough start to the year, down from $19,000 in Dec 17 to $10,000 now.

Anyway, back to more serious topics, a strong bounce from today’s low was obviously a good sign.

ASX 200 Intra-Day Chart

ASX 200 Daily Chart

CATCHING OUR EYE 1.Indepdence Group (IGO) $5.03 / -0.79%; A decent set of production numbers today with their Nova nickel and Tropicana gold doing well in the QTR and the company is well set up to meet all FY18 guidance metrics. On 25 October 2017 (SQ report), the CEO commented, “IGO has turned a corner, underpinned by first commercial production at company flagship project Nova nickel. Moreover, with continuing ramp up to reach full potential and a blend of higher grade ore in 2H18” … IGO could do a lot better in the second half of 18 however the market is positioned for that with 1H EBITDA of $135m versus full year expectations for $350m. Anyway, we still view this as a trading stock, and it continues to be on our radar for pullbacks to buy….

Independence Group Daily Chart

2. Sirtex Medical (SRX) $27.45 / 45.78%; The best on ground today after a bid was lobbed by US listed Varian Medical Systems last night at a huge 49% premium to last trade and the share price responded accordingly. The $28/share all cash offer, which was unanimously backed by the board, was one of a number of offers the board was considering and takes SRX back to levels not seen since they reduced FY17 guidance back in December of 2016. Given the significant premium, the offer is expected to be accepted by shareholders and barring any operational issues / better bids the deal will be completed in May of this year.

Sirtex Medical Daily Chart

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Have a great night

James & The Market Matters Team

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About this contributor

James Gerrish

James Gerrish

jgerrish@shawandpartners.com.au, Market Matters / Shaw and Partners

James is a Portfolio Manager within Shaw and Partners heading up a team that manages direct equity and option portfolios. He is also the Primary Contributor to Market Matters, a daily investment report that offers real market insight.

Expertise

ASX:IGO ASX:SRX

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